Tablet wars: Apple and Microsoft vs Amazon and Google

The recent flurry of tablets introduced by technology industry rivals has
highlighted a two-way split in how they plan to capitalise on the booming
market, with Apple and Microsoft sharing one approach, and Google and Amazon
the other.

New so-called “teardowns” have shown that Amazon stands to make little or no money on Kindle Fire HD sales, whereas Apple and Microsoft will enjoy healthy profit margins on the iPad Mini and Surface.

Amazon and Google, which earlier analysis showed offers the Nexus 7 tablet on a similarly low-margin basis, aim to really profit from tablets only once they are in owners’ hands via their services businesses, according to IHS iSuppli, which dismantles mobile devices to gauge their cost.

Amazon, as it did with the original Kindle Fire, will sell the Kindle Fire HD at close to the estimated cost of its materials and manufacturing. It will retail for $199 and cost $174 to make, not including extra expenses such as marketing and software licensing, which IHS iSuppli says could push the cost above the selling price. The online retailer aims instead to profit from sales of digital books, movies and music, and of physical goods, by undercutting competing hardware.

“The idea is to create a product at a compelling price point and then get a lot of consumer traction in order to put Amazon content and the Amazon online store into consumers’ hands,” said Andrew Rassweiler of IHS iSuppli.

Google is pursuing a similar strategy with its Nexus tablets, although it seeks to profit by driving traffic to its search engine rather than by selling digital or physical goods.

Apple and Microsoft are meanwhile seeking to make good money on the devices themselves.

Microsoft, with its first own-brand tablet, Surface, is pursuing a path taken by Apple, seeking a large profit on the device itself and encouraging owners to use its "ecosystem" of services. According to IHS iSuppli, the Surface is even more profitable than the full-sized iPad, with materials and manufacturing for the 32GB version with the Touch Cover keyboard totalling $284. Surface retails for $599, making for a profit margin of 53 per cent.

“From a hardware perspective Microsoft has succeeded with the Surface, offering an impressive tablet that is more profitable, on a percentage basis, than even the lucrative iPad based on current retail pricing,” said Mr Rassweiler.

The materials and manufacturing for the Wifi only, 16GB iPad mini, Apple’s response to smaller, cheaper tablets form Amazon and Google, meanwhile cost $198, according to the analysis. Given it retails for $329, the teardown shows Apple sticking to its longstanding strategy of pursuing high profit margins, this time around 40 per cent.

“With the iPad mini, Apple is sticking to the premium-brand strategy it has always used for its media tablet and smartphone products,” said Mr Rassweiler.